Insight into innovation:Why companies must innovate

3/22/2013

Sridhar Balasubramanian – also known as “Dr. B.” – is associate dean of the MBA Program, the Roy & Alice H. Richards Bicentennial Distinguished Scholar and professor of marketing at UNC Kenan-Flagler. He is a widely published and cited researcher. Below, read his insight into innovation, the first in a five-part series with UNC Kenan-Flagler professors.

Why is it important for an organization to master innovation?

There are multiple reasons why it is important for organizations to master innovation. First of all, the world is becoming increasingly competitive. Fifty years back you only talked about competition from your local region. Today, you produce a product, you try to patent it, but within about six months somebody … some company in Asia has produced something pretty close and they worked around your patents as well. The only way to respond to a situation like that is to be relentlessly innovative. Only companies that constantly challenge what they do, challenge themselves to come up with new and different ways of doing things, and also constantly improve on things that they already do will survive in this new globally competitive environment. That’s very, very important.

Customer expectations are also sky high. Customers today have very little patience with products that are old. If you think about baby boomers, they often think about a product as being around for, say, 30 years as tried and tested. Whereas a Generation Y member thinks of such a product as simply being tired. Innovation cycles are becoming rapidly shorter, which means that companies have to be constantly on their toes, turning out new products, new services, and often new solutions because customers today don’t just want a product or a service. They want companies that solve their problems.

All of this means that to thrive in today’s rapidly changing globally competitive environment, companies have no option but to be innovative.

You mention the challenge of organizations trying to innovate quickly and develop both new solutions and improve on their previous. Do you have some examples of companies that we all might recognize that seem to have the process of doing that down pretty well?

Both Apple and Samsung, in the cell phone market, have been very good at innovating. They innovate in somewhat different ways. It’s interesting, if you think about Apple, they came up with the iPhone, and if you look at the design of the iPhone today and compare it with the original design, there are lots of similarities, but yet there’s been a lot of change. In the middle of all that change they’ve managed to keep the identity, the soul of the product intact.

On the other hand if you think about companies like Samsung, they have scores of phones which are quite distinct on the market, and they approach innovation as “we’ll produce a phone for every type of customer and pretty much saturate the market with phones”.

Here are two companies that have adopted very different approaches to innovation, but each approach works in its own way. Apple has the “let’s look at the product, let’s refine it, let’s make it more jewel like, let’s put in some more functionality but let’s keep the soul of the product the same.” Whereas Samsung’s approach is “let’s do a lot of things in order to overwhelm the customer with choice.”

Also the other kind of innovation that is really coming to the fore right now, especially with the economy not being on steroids at the moment, is there’s no what you call frugal innovation, innovation on a shoestring, so to say. A good example of that actually comes from Asia – the Tata Nano. Tata, which also, by the way, runs Jaguar and Land Rover which are luxury marquis brands today, came up with Tata Nano which was a car that sold for something like $2,500. How did they do this? You cannot build a car that sells for $2,500 by taking a car that sells for, say $10,000, and simply cheapening it. You have to challenge everything that goes into the car. You’ve got to design the car from the ground up. They came up with a car that sold for $2,500 and made a bit of money.

A lot of ideas about how to do things simply, how to innovate on a shoestring, are now coming back to developed economies from developing economies, whereas historically the flow of innovation has always been from developed economies to developing economies. This is a reverse innovation that’s also taking place right now. A lot of interesting changes in the way companies are looking at innovation.

I’d also say that 15 years back, the thinking in organizations was often “Hey, I’m a doer. I’m an executive. Innovation is for those brainy cone heads located in the third floor corner office.” That thinking has changed. There’s been this big democratization of innovation where everybody can potentially be an innovative thinker. To do that successfully, what you need to have are the tools and techniques and the comfort level with thinking innovatively.

From an academic viewpoint, one of the things that we always try to do is not just to give managers and students concepts related to innovation, but tangible tools and techniques that they can go ahead and apply to be innovative on an anytime, anywhere basis.

What are your thoughts on if there are advantages to one approach of innovation verses the other?

I think that both approaches work. It’s a question of “How do you want to do this?” With Apple, everything is simplified. We have a simplified phone, there’s just one phone that they typically produce at any time. They introduce one phone and then fade out the other models very quickly. Samsung could produce 20 different phones at any point in time. They’re just different models of doing business. I would argue that there is no one best route to being innovative. In fact, what a successful innovation is largely defined by certain context. As the context changes, what is the innovation model that the firm must adopt? That changes as well. Successful innovation is often a question of matching what the company does inside, in terms of the innovation processes, and what is happening on the outside, in terms of how is the brand positioned, what are the market segments the company goes after, what is the degree of competition, etc. I wouldn’t think that being locked into a narrow perspective and “this is the only thing that works” is the way to go. I think that having some flexibility is very important.

This also brings up another point, which is often the companies that find it the most difficult to change, to be innovative in response to the environment, and even in anticipation of changes in the environment are large, successful organizations because large successful organization are often prisoners of their history. They build core competency, something that really makes them good at what they do. But when such an organization is embedded in an environment that is globally competitive and rapidly changing, a core competency that empowers the organization today can very quickly become a core rigidity, something that fetters the organization tomorrow.

Therefore it is particularly important for successful organizations to build, not just some core competencies which is what is it they’re good at and stick to them, it’s also important for them to build a business ability of strategic flexibility, which is the ability to be good at change, the ability to challenge their past, to challenge their core competencies and to ask “What is it that I should carry forward into the future, and what is it that I should leave behind?” Then there are some new core competencies that enable them to intersect with the environment where it’s going. That can often be difficult because it is often so difficult for companies to step away and to sometimes even renounce what has made them successful in the past.

What are some of the steps large organizations can begin taking to shift that culture and empower teams to think that way?

That’s a very good question, how do large organizations … and how does, for that matter, any organization build a culture of innovation and change? Fundamentally, it comes down to three things. The first is: Are people motivated to be innovative? This is the old argument that you can take a horse to water but you can’t make it drink. If people deep within their hearts don’t want to change, they don’t want to be innovative and nothing’s going to happen. This is where leadership comes in. Is the leader a champion for innovation? Are they lighting the fire inside their people about the need to change, about the desire to change and are they getting the team rolling in that direction?

The second is: opportunity. If managers spend the entire day fighting fires and thinking about next quarter’s results, they are not going to be innovative. You have to create the time, the white board, and the room where people can get together and have the opportunity to think about change and to be innovative. You’ve got to create it, otherwise innovation will not automatically happen.

The third is: ability. Are the managers really champions of change? They may create the time every Friday from 3:00 – 5:00 and say, “We’ll not talk about this quarter, we’ll talk about what new things we can do, and how we can do existing things differently.” Then they all get together and they all want to change, but they’re looking at each other and they’re thinking “How do we make this happen?” That’s the ability part of it.

There’s motivation (M), opportunity (O) and ability (A).

The interesting thing is any one of these (M, O, A) can be a bottleneck on the other two. You could be highly motivated. You could create the time and the space, the opportunity, but if you don’t know how to be innovative, nothing’s going to happen. Likewise, you could be highly motivated. You could have the ability, but if you don’t create the time and the space to be innovative, nothing’s going to happen. Finally, you could have the time and the space, you could know how to do it, but if you don’t really want to do it deep inside you, nothing’s going to happen.
It’s very important for organizations to step back and say, “Which of these are really blocking the innovation process, and how do we open up these bottlenecks and let innovation flow through the pipelines?”

Is the ability to be innovative something that can be taught or is that like motivation, where it comes from within?

That’s where relying on experts comes in because an expert can actually, in my opinion, teach people to be innovative. We cover tools and techniques and frameworks that we share that managers can take from programs to work Monday morning and then start thinking differently by applying these tools and frameworks. Absolutely. People can learn to be innovative.